What does it mean? Markup is the difference between the total cost of an item and its selling price. Total cost here means all costs that need to be covered to create a profit. Let’s say that you buy a loaf of bread from a bakery. You buy it for 3 euro. However, the costs incurred by the bakery amount to 2 euro. It means that the baker made a 1 euro profit. Markup is the percentage that comes from dividing the profit by the wholesale price and multiplying by one hundred. In this case, 1 divided by 2 and multiplied by one hundred gives the 50 percent markup.
The higher the markup, the bigger the profit made by the seller, but also more money paid by the consumer. While the acceptable markup is around 100 percent, some products go for a lot more. Read on to discover in which places you will find crazy-high markups and find out what are the best ways to avoid them.
In the coffee shop
Coffee is something many of us cannot properly function without. Coffeehouse chains know that, and because of this knowledge they can easily get away with high pricing. According to NBC News a 300 percent markup on the coffee bought in a café is very common nowadays.
For the same money paid for one coffee in a brand name café you can prepare up to twelve cups of coffee at home. Maybe it is a good time to invest in a decent coffee maker and a thermal flask?
In the jewelry shop
They say love cannot be bought. However, just as Beyoncé sang “if you like it then you should put a ring on it”. Unfortunately, symbols of love, including engagement rings, can cost quite a lot, often much more than they are worth. This is particularly true if you follow the thought of another great woman who sang that “diamonds are a girl’s best friend”.
A brand name diamond can be marked up as much as 400 percent. The reason for such a markup price on diamonds is simple – a high demand for this beautiful stone. Nonetheless, nowadays there are cheaper alternatives to luxurious brands of jewelry as thanks to online retailers it is possible to find diamond rings with just 20 to 40 percent markups.
In the drugstore
Diamonds are not the only products that because of their luxury association tend to have incredibly high markups. Take, for example, perfume. The cost of the product itself is usually not what you are paying for as most of the ingredients are easy to obtain. Rather, you pay for the packaging and marketing.
If you want to save some money and do not mind doing without a beautiful bottle named after a celebrity, try to make your own perfume. The Internet is full of DIY blogs and websites about techniques of blending various oils and scents to make your very own bottle of perfume. Who knows, maybe you will be so successful that your product will be the next one to be sold in the drugstores with a huge profit?
At the cinema
Watching a movie is not the same without a snack, and what can be a better snack in a movie theater than freshly made popcorn? Have you ever thought about the price of popcorn, though? You should, as the popcorn bought at the cinema has an average markup of 1275 percent!
According to BuzzFeed, for the amount of money paid for one bag of popcorn at a movie theater you can buy at least 15 bags of popcorn in a grocery store. Similar price differences occur with drinks. For instance, in Cinema City’s Polish movie theaters, one liter of a fizzy drink costs approximately 2.30 euro. For this money one can buy three liters of the same drink in a grocery shop. Netflix and home-made snacks seem like a reasonable (and by far cheaper) solution.
In the hotel
Traveling a lot? Staying at hotels? Remember to check the pricing of the products available in your room. Products that you can find in the mini bar of the hotel room have crazy high markups reaching 400 percent.
Often enough, just leaving your room will cause the prices to drop significantly. If you tend to have sudden food cravings and plan to stay at a hotel, grab a candy bar or two on your way there to avoid unnecessary costs.
In the electronics shop
Nowadays electronics are made in great quantities and also at the lowest cost possible. It does not however mean that they are becoming cheaper. Even though production costs constantly decrease, prices stay at the same level. Therefore, a shop selling electronics products is one of the spots where the highest markups can be found.
According to the Business Insider, cables are among the products with the highest markups. An Ethernet cable has a 1000 percent markup whereas an HDMI cable has a markup on the level of 1900 percent. It is better to take good care of such products to avoid unnecessarily high costs in case they break. Nonetheless, in the electronics category, services lead in terms of markups. Text messages sent through the Short Message Service can have a 6000 percent markup! If you text a lot, think about an unlimited plan for your phone.
In the clothing store
Those who love shopping for clothes will be disappointed to hear that even in clothing stores high markups are rather a norm than an exception. Finding a perfect pair of jeans can be quite challenging, and clothing brands know how to use it to make profit. According to the Wall Street Journal, designer jeans often come with a 260 percent markup.
The best solution is to shop during sales or in discount clothing stores. Also, thrift shops are the go-to place when it comes to finding great deals. With a bit of luck and determination it is possible to bypass the gigantic markups put on clothing.
In the pharmacy
Health is worth a lot, and the price tags on prescription drugs confirm this statement. According to Money Crashers, the antidepressant drug Prozac costs 136 US dollars per bottle, while the generic version of the same medicine costs just 3 US dollars. Just because of a different label, the consumers pay a markup amounting to 4451 percent!
A good solution is to ask a doctor whether there is a cheaper version of the drug to prescribe for you. Another fix that may help you save some money is to ask a doctor for free samples.
Is there any solution to high markups?
In many cases we cannot escape the high markups. Solutions to high markups on popcorn in movie theaters or prices of prescription drugs are limited. However, there are also markups we can easily avoid.
One of the most demonstrative examples is bottled water, which according to the Business Insider has a 2000 percent markup on its price. Simple solutions always work best, and this applies to strategies to avoid high markups, too. In this particular example all to have to do is invest in a water filter and a water bottle to stay hydrated. At the same time you will reduce the amount of plastic waste – a solution that is good for the environment and for your wallet.